Homebuyers’ preference to increasingly shift towards affordability post COVID-19

End users seek comfort around financial security and confidence in the future to be able to make a home buying decision.

Homebuyers’ preference to increasingly shift towards affordability post COVID-19
The concept of studio apartments is very well adapted across countries and has found prominence among young professionals.

Real estate accounts for a sizeable 7% of India’s GDP and employs over 50 million people. The industry also has a cascading effect on economy with over 250 related industries having linkages with it. It is of strategic importance not only as an economic growth driver but also towards job creation across the country. The industry was struggling over the past several years due to regulatory actions and macro environment factors such as demonetisation, RERA, GST, IBC and the NBFC crisis. Just when it was appearing set to emerge from the woods, Covid-19 has struck. Due to expected economic fallouts of the pandemic, the immediate future outlook for the industry appears to be challenging.

With prices being flattish over the past several years, the speculative investor buyer had by and large exited the market, thereby making it a market driven only by end users. For end users, real estate is an emotive yet thoughtful purchase, with significant financial outlays and EMIs running over several years. End users seek comfort around financial security and confidence in the future to be able to make a home buying decision.

Magicbricks conducted an extensive consumer survey to understand the ‘mood of the buyer’ amidst the uncertainty. There were three significant findings. First, that 67 percent of consumers still want to go ahead with their home buying plans. As the industry emerges from the lockdown, this will bodes well to kick-start the purchase cycle again. Two, that while 2/3rd of buyers mentioned that they’d pursue home buying, 73 percent of them were looking at reducing their budget by 10-15% and were also wanting to defer their buying by 3-6 months more. And finally, that job uncertainty and expected price volatility were triggers that were driving this sentiment & consequently solutions which mitigated these would also drive purchase behaviour.

The sentiments are also varied across geographies and age groups. Stable markets such as Bengaluru and Pune are seeing the least drop in consumer sentiment. Sentiment is also stronger in the 36-45 age group compared to the younger Gen Z. The study also suggests that home buyers will now look just not for price drops or discounts, but will exhibit a higher propensity towards ready-to-move in apartments in gated societies. All of this will only accelerate an already emerging trend in the industry pointing towards a shift towards ready-to-move in properties and with reduced outlays.

Prices in the last one month of lockdown have decreased by 2-9% across cities. In the past, during major economic disruptions like demonetisation, prices remained largely stagnant. Developer margins have shrunk considerably in the post RERA environment and there is understandable resistance from sellers to therefore reduce prices. However, with demand likely to shrink by a third and with liquidity issues causing a potential distress situation with some sellers, there could be attractive deals and buying opportunities that become available in several micro markets.

Interestingly, with the lockdown forcing everyone to spend an inordinate amount of time at home, large sets of buyers are also considering upgrades so as to have homes that allow them to manage better in the new environment. This could mean a bigger home with an additional room to enable work from home, or homes in less-dense societies or localities. This too bodes well for the industry in the mid to long term if it could come up with highly relevant products that meet such needs.

Liquidity, slower sales and labour are the top three issues that would plague the industry in the short term as a fallouts of covid-19. However, the consumers’ desire to have one’s own home and importantly, to seek a better home will perhaps now be stronger than ever before.

(By Sudhir Pai, CEO, Magicbricks)

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